TMI Blog2015 (5) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 40(a)(ia) cannot be read separately from the provisions relating to TDS as pleaded on behalf of assessee. In our opinion, ld. CIT (Appeals) has rightly observed that taking the spirit of TDS provision into account and Section 40(a)(ia) being directly related to such TDS provision, a harmonious construction of the word 'payable' leads to inevitable conclusion that the said word also includes the 'paid' amount. It is evident that the emphasis is on liability to pay and not on actual payment. If we accept the contention of assessee, then Section 40(a)(ia) would become otiose and the section will not be attracted where payment is made though without deducting tax at source. The provisions of section 40(a)(ia) of the Income Tax Act, 1961, are applicable not only to the amount which is shown as payable on the date of balance-sheet, but it is applicable to such expenditure, which become payable at any time during the relevant previous year and was actually paid within the previous year. In the result the question is decided in favour of revenue - ITA No.716 of 2009 (O&M), ITA No.130 of 2012, ITA No.171 of 2014, ITA No.188 of 2014 - - - Dated:- 29-4-2015 - S. J. Vazifdar, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal is right in law in brushing aside the purposive, conscious and intentional usage of the term 'PAYABLE' by the legislature in all its wisdom in Sec.40(a)(ia) of the 'Act', and substituting the same by the term 'PAID', in the name of giving effect to the supposed underlying object behind the said enactment? 3. Whether the Tribunal while interpreting the scope of applicability of Sec.40(a)(ia) of the 'Act' is right in law in brushing aside the settled rule of construction recognised by the Hon'ble Apex Court that if two reasonable constructions of a taxing provision are possible, then that construction which favours the assessee must be adopted? 5. ITA No.130 of 2012 was admitted by an order dated 19.07.2013 on the following substantial questions of law:- 1. Whether the ITAT is justified in upholding that the appellant was liable to deduct the tax at source on the freight charges reimbursed by way of credit notes to its distributors which does not give rise to any income in the hands of the recipients and as per Section 4(1) read with Section 190 of the IT Act, 1961, particularly when the TDS even if deducted the payees could not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect whereof TDS was liable to be deducted and paid. The Assessing Officer disallowed the aggregate expenses of ₹ 40,98,544/- under Section 40(a)(ia) and added the same to the assessee's total income. At the hearing before us, the appellant proceeded on the basis that payments had been made in respect whereof tax was liable to be deducted at source but had not been deducted and, in any event, had not been deposited in the government account. It is not necessary to refer to the various defaults in this regard for the matter proceeded on the basis that the appellant had not deducted the tax at source and even if they had done so they had not deposited the same in the government account. 8. The appellant filed appeals before the Commissioner of Income Tax (Appeals). The CIT (Appeals) found that out of the job work charges of ₹ 25,24,109/- only a sum of ₹ 7,65,807/- remained payable on which tax was not deducted, out of the publicity expenses, a sum of only ₹ 53,542/- remained payable on which tax was not deducted and under other heads i.e. shipping expenses, legal expenses, freight inward, clearing and forwarding charges, the entire amount of expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any other mode, whichever is earlier, deduct income-tax at the rates in force on the amount of the interest payable: . 194-C. Payments to contractors.-(1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- . 200. Duty of person deducting tax.-(1) Any person deducting any sum in accordance with the foregoing provisions of this chapter] shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs. (2) Any person being an employer, referred to in subsection (1-A) of Section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs. (3) Any person deducting any sum on or after the 1st day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of credit of such sum to the account of the contractor or at the time of the payment thereof. . That the legislature has granted an assessee a relaxation from the rigours of Section 40(a)(ia) does not detract from the mandatory nature of the liability to deduct the tax at source under the various provisions of Chapter XVII-B. Our view is supported by the judgments of the Calcutta and Madras High Courts. 12. A Division Bench of the Calcutta High Court in Commissioner of Income Tax vs. Crescent Export Syndicate, (2013) 216 Taxman 258 (Calcutta) held:- 13. .. The term 'shall' used in all these sections make it clear that these are mandatory provisions and applicable to the entire sum contemplated under the respective sections. These sections do not give any leverage to the assessee to make the payment without making TDS. On the contrary, the intention of the legislature is evident from the fact that timing of deduction of tax is earliest possible opportunity to recover tax, either at the time of credit in the account of payee or at the time of payment to payee, whichever is earlier. 13. Ms. Dhugga invited our attention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have expected the provision to so stipulate clearly, if not expressly. It is not suggested that assessees following the cash system are not liable to deduct tax at source. It is not suggested that the provisions of Chapter XVII-B do not apply to assessees following the cash system. There is nothing in Chapter XVII-B either that suggests otherwise. 18. Our view is fortified by the Explanatory Note to Finance Bill (No.2) of 2004. Sub-clause (ia) of clause (a) of Section 40 was introduced by the Finance Bill (No.2) of 2004 with effect from 01.04.2005. The Explanatory Note to Finance Bill-2004 stated:- ..... ..... ..... ..... .. With a view to augment compliance of TDS provisions, it is proposed to extend the provisions of section 40(a)(i) to payments of interest, commission or brokerage, fees for professional services or fees for technical services to residents, and payments to a resident contractor or sub-contractor for carrying out any work (including supply of labour for carrying out any work), on which tax has not been deducted or after deduction, has not been paid before the expiry of the time prescribed under sub-section(1) of section 200 and in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent account. 22. Section 40(a)(ia) refers to the nature of the default and the consequence of the default. The default is a failure to deduct the tax at source under Chapter XVII-B or after deduction the failure to pay over the same to the Government account. The term payable only indicates the type or nature of the payments by the assessees to the persons/payees referred to in Section 40(a)(ia), such as, contractors. It is not in respect of every payment to a payee referred to in Chapter XVII-B that an assessee is bound to deduct tax. There may be payments to persons referred to in Chapter XVII-B, which do not attract the provisions of Chapter XVII-B. The consequences under Section 40(a)(ia) would only operate on account of failure to deduct tax where the tax is liable to be deducted under the provisions of the Act and in particular Chapter XVII-B thereof. It is in that sense that the term payable has been used. The term payable is descriptive of the payments which attract the liability to deduct tax at source. It does not categorize defaults on the basis of when the payments are made to the payees of such amounts which attract the liability to deduct tax at source. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise not even remotely required or even contemplated by the section. Once this is realized, the fallacy in the contention on behalf of the appellant becomes even more apparent. 26. As we have just noted, Section 40(a)(ia) also applies to assessees following the cash system and the liability of such assessees to deduct tax at source is only upon payment being made to the payee. If the appellant's contention is accepted, once payment is made, the question of the amount being payable to the payee would not even arise. In that event, an assessee following the cash system would never be met with the consequences of Section 40(a)(ia) even if he fails to comply with his obligation to deduct tax at source. If the appellant's submission is accepted, there would be no connection or correlation between two ingredients in the opening part of sub-clause (ia) itself viz. the reference in the opening part to any amounts payable to a party on the one hand and the concluding words on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid - ........ on the other. It is clear, therefore, that the use of the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the liability to deduct tax at source would arise in the case of an assessee following the cash system only upon payment of the amount to the payee/contracting party and in the case of an assessee following the mercantile system, upon the assessee crediting such sum to the account of the payee. Merely because an assessee has not deducted the tax at the relevant time, it does not follow that the assessee cannot thereafter deduct the same. If, for instance, an assessee recovers the amount from the payee subsequently, it would still constitute a deduction from the amount payable to the payee. It would only constitute a subsequent deduction. But, a deduction it still is. The verb deduct means to take away and the noun deduction is the act or process of deducting. If the tax has been deducted at source when it ought to have been, it would have constituted taking away a part of the money due to the payee. By recovering the amount from the payee subsequently, it would still amount to an act or process of deducting from the amount originally payable. That the same is done after the amount is paid or credited would make no difference. There would be a reduction in the amount paid neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious sections contained in Chapter XVII-B noted above, on which tax was deductible and, therefore, the term 'payable' in Section 40(a)(ia) refers to entire amount on which tax was required to be deducted. Keeping in view the principles of harmonious construction, the term 'payable' in Section 40(a)(ia) cannot be read separately from the provisions relating to TDS as pleaded on behalf of assessee. In our opinion, ld. CIT (Appeals) has rightly observed that taking the spirit of TDS provision into account and Section 40(a)(ia) being directly related to such TDS provision, a harmonious construction of the word 'payable' leads to inevitable conclusion that the said word also includes the 'paid' amount. 14. Ld. Counsel has relied on the dictionary meaning of term 'payable' which, in our opinion, cannot be resorted to in view of discussion in foregoing paras. The context in which term 'payable' has been used in Section 40(a)(ia) is to be taken into consideration. The context is various sections of Chapter XVII-B. .. .. 16. A bare reading of the above provision would make it clear that the term 'paid' does not only m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wanted to treat the payments made or credited in favour of a contractor or sub-contractor differently than the payments on account of interest, commission or brokerage, fees for professional services or fees for technical services because the words amounts credited or paid were used only in relation to a contractor or sub-contractor. This differential treatment was not intended. Therefore, the legislature provided that the amounts, on which tax is deductible at source under Chapter XVII-B payable on account of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services or to a contractor or sub-contractor shall not be deducted in computing the income of an assessee in case he has not deduced, or after deduction has not paid within the specified time. The language used by the legislature in the finally enacted law is clear and unambiguous whereas the language used in the bill was ambiguous. We are in respectful agreement with the conclusion and the reasoning of the Division Bench of the Calcutta High Court. 32. A Division Bench of the Gujarat High Court dealt with this issue in Commissioner of Income Tax vs. Sikandar Khan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of Commissioner of Income Tax, Gujarat Vs. Ashokbhai Chimanbhai (supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period i.e. the accounting year. In this context, last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to last date of the accounting period. Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view taken by the Division Bench of the Allahabad High Court. We do not have the benefit of any reasoning for the finding. It is true that the Supreme Court by an order dated 02.07.2014, dismissed the department's petition for special leave to appeal. The SLP was, however, dismissed in limine. The dismissal of the SLP, therefore, does not confirm the view of the Allahabad High Court. As held by the Supreme Court in V.M. Salgaocar Bros. (P) Ltd., etc. Vs. Commissioner of Income Tax, etc. (2000) 243 ITR 383 (SC) and in Supreme Court Employees Welfare Association vs. Union of India (1989) 4 SCC 187, when an SLP is summarily dismissed under Article 136 of the Constitution, the Court does not lay down any law and that the dismissal of an SLP in limine by a non speaking order does not justify any inference that the contentions raised on the merits of the case have been rejected and that all that the Supreme Court can be held in such a case to have decided is that it was not a fit case where special leave should be granted. When a special leave petition is dismissed, the Supreme Court does not comment on the correctness or otherwise of the order from which leave to appeal is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down the principle that where the amounts have been paid during the year under consideration itself and nothing is payable at the close of the year, no disallowance was warranted under section 40(a)(ia) of the Act for non deduction of tax at source out of such amount paid during the year. Following the above said parity of reasoning, we direct the Assessing Officer to verify the stand of the assessee and in case the said amounts have been paid by the assessee during the year under consideration, no disallowance is warranted out of said payments in line with the provisions of section 40(a)(ia) of the Act. Reasonable opportunity of hearing shall be afforded to the assessee by the Assessing Officer for adjudicating the issue. The ground of appeal raised by the assessee is allowed for statistical purposes. We find no reason whether in fact or in law to interfere with the above finding as the Tribunal has left it on the assessing officer to determine whether payments were made by the assessee during the year under consideration. It is clear to us that the Division Bench did not decide the issue as the Tribunal had left it to the Assessing Officer to determine whether the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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